Chapter 14 Problems Review
The U.S. Federal Reserve, the Bank of England, the Bank of Japan, and the ECB are all:
central banks
William McChesney Martin, Alan Greenspan, and Ben Bernanke were all:
chairs of Federal Reserve
Which of the following is considered to be money?
checkable bank deposits
Money that has value apart from its use as money is:
commodity money
Which of the following assets is the MOST liquid?
currency
When banks borrow from and lend reserves to each other, they are participating in the _____ market.
federal funds
Money that the government has ordered to be accepted as money is:
fiat money
The U.S. dollar is defined as:
fiat money, because it was established as money by an act of law
A reserve ratio is the:
fraction of deposits that the bank is required to hold as reserves
When the Fed decreases the reserve requirement, banks lend _____ of their deposits, which leads to a(n) _____ in the money supply.
more; increase
The Federal Reserve Bank of the United States is:
not exactly part of the U.S. government but not really a private institution either
To change the money supply, the Federal Reserve most frequently uses:
open-market operations
If it looks as if a bank won't meet the Federal Reserve Bank's reserve requirement, normally it will first turn to the:
other member banks and borrow money at the federal funds rate
Banks can lend money because:
they know not everyone wants their deposits back at the same time
Suppose the reserve ratio is 20%. If Sam deposits $500 in his checking account, his bank can increase loans by:
$400
The Fed's minimum required reserve requirement for checkable bank deposits is:
10%
The Federal Reserve System was established in:
1913
In the United States, the institution that is charged with determining the size of the monetary base and with regulating the banking system is the:
Federal Reserve
Currency in circulation is cash: I. held by the public. II. in the vaults of commercial banks. III. in the vault of the Federal Reserve.
I only
Which of the following is (are) a tool(s) of monetary policy used by the Federal Reserve? I. open market operations II. government purchases of goods and services
I only
Which of the following is a function of the Federal Reserve System? I. conducting fiscal policy II. examining and supervising commercial banks in the Fed regions III. evaluating corporate mergers
II only
Which of the following is a function of the Federal Reserve System? I. conducting monetary policy II. examining and supervising commercial banks in the Fed regions III. providing liquidity to financial institutions
II only
The Federal Reserve reports on two main monetary aggregates:
M1 and M2
Which of the following about bank runs is FALSE?
bank runs typically happen only to small banks with few financial assets.
The discount rate is the interest rate the Federal Reserve charges on loans to:
banks
Which of the following is a tool used by the Federal Reserve in the conduct of monetary policy?
buying and selling federal government bonds
If the Fed conducts an open-market sale, bank reserves _____ and the money supply is likely to _____.
decrease; decrease
If the Federal Reserve wants to increase the monetary base, it might:
engage in an open market purchase of Treasury bills
Suppose the Federal Reserve were to buy $100 million of U.S. Treasury bills. The money supply would:
increase by more than $100 million
When the Fed decreases the discount rate, banks are likely to _____ their lending and the money supply _____.
increase; increase
Most of the Fed's income comes from:
interest on the U.S. Treasury bills that it owns
If banks were required to keep 100% of deposits in reserves, they could:
make no loans
Money used to buy groceries is a:
medium of exchange
All of the following are responsibilities of the Federal Reserve EXCEPT to:
mint bills and coins
The three main monetary policy tools are:
reserve requirements, the discount rate, and open-market purchases
The existence of banks:
results in the money supply being larger than the amount of currency in circulation
Suppose a group of people decided to set up their own economic system with cartons of milk serving as money. If we decided to use this "liquid asset" as our medium of exchange and all prices were measured in cartons of milk, milk would still not be a good form of money mainly because it would not be a good:
store of value
When you discover money in your coat that you put there last winter, you unexpectedly find you were using money primarily as a(n):
store of value
Which of the following acts to protect depositors from a bank run by insuring all deposits up to $250,000?
the FDIC
When a person makes price comparisons among products, money is being used mainly as a(n):
unit of account
